Penn National Gaming Betting on REIT Structure

Penn National Gaming Inc. intends to pursue a plan to separate its gaming operating assets and real estate property assets into two publicly traded companies. The plan will result in the formation of an operating entity, Penn National Gaming (“PNG”), and, through a tax-free spin-off of its real estate assets to holders of PENN common stock, a newly formed, publicly traded real estate investment trust (REIT).

If approved by gaming regulatory boards, the plan would create the first gaming focused REIT.

The REIT would own 17 casino facilities encompassing more than 6.9 million square feet of building space, 20,000 structured parking spaces and 3,200 acres of land.

Under the plan, the proposed REIT would initially own substantially all of PENN’s real property assets and will lease back most of those assets to PNG for use by its subsidiaries, under a “triple net” 35-year master lease agreement (including extensions). Initially, rent would equal $450 million, which represents approximately half of PNG’s projected 2013 adjusted EBITDA. The master lease includes a building rent escalator of 2% annually.

Peter M. Carlino, chairman and CEO of Penn National Gaming, said, “Our plan is to create two well capitalized companies with strong free cash flow that are positioned for growth in the gaming and REIT sectors.”

Carlino said the transaction and new ownership structure would provide the two companies with access to a lower blended cost of capital and fewer regulatory license ownership restrictions. He also said the REIT structure would provide a new capital funding source with the potential to diversify beyond the gaming industry.

"The REIT is a highly efficient vehicle for providing consistent and growing income distributions to shareholders as PENN generates substantial and growing free cash flow from existing and future operations,” he said.

“The operating entity, PNG, will continue to benefit from its strong and diversified regional presence, proven management team, property development capabilities, strong balance sheet, proven operating discipline, highly regarded Hollywood Casino brand, and robust customer database,” he said. “PNG will retain its existing growth pipeline while pursuing additional near- and long-term domestic and international growth opportunities that can be highly impactful for its shareholders. In addition, the new structure is expected to allow PNG to operate additional facilities in certain gaming jurisdictions that have ownership limitations.”